Otto Perez Molina (left), who resigned as Guatemala's president on September 2, and former president Alfonso Portillo, who in 2014 pleaded guilty to money laundering charges. (Photos: Guatemala government)

Wednesday, September 2, 2015

Perspectives

Tackling Fraud in Guatemala

Make transparency and asset recovery part of
government reforms.

BY RODRIGO CALLEJAS

In the wake of two
colossal government fraud scandals that captured international media attention,
it appears that there may finally be a glimmer of hope for change in a
beleaguered Guatemala, long plagued by fraud. Citizens from across the country
have taken to the streets, calling for accountability, with an election looming
in September. Public support for law enforcement efforts in a series of
criminal investigations is high.

With public opinion in
favor of broad reforms, leaders who care about good government and the
country’s future should seize the opportunity for change.

Details of rampant
corruption were made public following investigations by Guatemalan law
enforcement authorities and the International Commission Against Impunity in
Guatemala (CICIG). CICIG is an independent United Nations operation established
in 2006 under an agreement between the UN and the Guatemalan government as part
of efforts to investigate and prosecute secret groups responsible for violence,
intimidation and corruption within the national government.

Investigations have
revealed the existence of criminal organizations involving every branch of
government, police, attorneys and members of the private sector. Between April
and August of this year, more than 50 individuals have been subject to
investigations in more than ten fraudulent schemes that exceed $250 million.

SEND A CLEAR MESSAGE THAT CITIZENS MATTER

While the process will
not be easy, citizens want serious reforms to guarantee a transparent and
efficient use of public resources and access to information. They want to
ensure that elected officials comply with ethics laws. They also want adoption
of legislative reforms based on international standards that would modify our
civil service regime, public contracting system, handling of the country’s
annual budget and impose stricter regulation of the public ministry, general
comptroller and tax administration.

Criminal prosecution of
government officials of the highest rank is not enough. The government needs to
make every effort to return defrauded money to the people of Guatemala, sending
a message that its citizens do matter. Public officials must then use the
restored assets to strengthen law enforcement efforts so that criminals cannot
operate with impunity within the government.

To address the millions
defrauded from its citizens, the country must also adopt an enforcement plan
that includes asset tracing and asset recovery through collaboration with
international specialized agencies and professionals

As asset recovery
specialists and affiliates of ICC FraudNet, we often see the damage done by
fraud in countries around the world and the impact on victims – both
individuals and governments. ICC FraudNet is an international network of
independent lawyers who are the leading civil asset recovery specialists in
each country. We also see the success that a coordinated asset recovery network
can bring to investigations, including restoring assets to victims

Without the excellent
work of investigators, these scandals would not have come to light. However,
they need help. The size of the fraud cases points to the need for extensive
reform, and additional outside assistance.

WHO ARE THE VICTIMS?
Victims of these fraudulent schemes are taxpayers and Guatemalan citizens,
including the poor who lack access to education and healthcare.They deserve respect, dignity and
restitution.

Investigations made
public in April revealed that the state was defrauded by millions of dollars by
tax agents taking bribes in exchange for lower customs duties.

The fraud at the
Guatemalan Social Security Institute (IGSS) involved a $14.5 million contract
for dialysis services that has allegedly caused the deaths of more than 20
patients covered by Institute’s health insurance. Prosecutors accuse public
officials of bribery, trading in influence and gaining illegal commissions in
connection with the contract awarded to a private firm.

According to a recent
study presented by the Central American Institute of Fiscal Studies (ICEFI) and
Oxfam Guatemala, in 2015, 6 percent of the approved budget will be lost by acts
of corruption, equivalent to Q1.00 of every Q5.00. The study concludes that
this loss violates respect for human rights, impeding opportunities for health,
education, nutrition, housing, justice and overall quality of life for
Guatemalan citizens

RESTORING ASSETS AND FAITH IN GOVERNMENT

Assets can be traced and
recovered in favor of the State. Traditionally, authorities have focused mainly
on the prosecution of criminals and their punishment, not considering the full
potential of civil lawsuits to recover stolen assets.

For example, in the case
of former president Alfonso Portillo
(2000-2004), who was extradited to the U.S., and in 2014 pleaded guilty to
money laundering charges, tracing and recovery efforts are ongoing in
jurisdictions including France, Switzerland and Luxembourg. Portillo has served
his sentence, but the State of Guatemala has not recovered the lost funds
channeled by Portillo through several financial institutions in America and
Europe for the benefit of himself and his family. These funds are allegedly
continuing to be used unchecked to finance Mr. Portillo´s run for congress.

With 21 resolutions
being issued so far in 2015, civil-asset forfeiture efforts have recovered
approximately US$4.5 million, which will be used to continue asset recovery
efforts. Notwithstanding, the State should implement all available tools,
through the General Prosecutor of the Nation (PGN) and Attorney General, to recover
funds in favor of victims, including the State, its institutions (Tax
Administration and Social Security Institute), and patients victimized by fraud
at the Institute and other victims of financial fraud.

While Guatemala’s
predicament may seem extreme, there is much for other countries to learn.
Combatting and even preventing fraud and corruption requires an integral
approach facilitated by a strong legal framework with the necessary tools --
technically savvy investigative authorities, a global approach to fraud and
asset recovery, advanced technology, and most importantly, active citizens
demanding accountability for the acts of public officials.

Rodrigo Callejas, partner with Carrillo y
Asociados focuses on Insolvency, Fraud, Asset Tracing and Asset Recovery. He
has actively participated in complex white-collar crime investigations in
Central and South America, United States, the Caribbean and Europe. He is
affiliated with ICC FraudNet, recognized by Chambers Global as the world’s
leading asset recovery legal network.

The author gratefully acknowledges the
assistance of Emanuel Callejas in preparing this article.